If you are turning age 62 in 2017, I have some bad news. You are no longer eligible for full Social Security benefits at age 66. Instead, your full retirement benefits have shifted to age 66 and two months. By 2022, full retirement age will rise again and again until the age of 67 for everyone born in 1960 or later.
“How did this happen?” you might ask.
For the answer you have to look back thirty-four years to the Social Security Amendments Act of 1983. Back then, the Social Security Trust fund was running out of money (sound familiar?). The same politicians that were responsible for spending your hard-earned savings came up with a series of adjustments to extend the financial stability of the system for another 50 years. One of the provisions was to increase the Social Security full retirement age from 65 to 67.
In order to soften the blow, the increase was to be phased in over time. Some Americans would be grandfathered in, while others would benefit from an eleven-year delay. The end result, after all the foot dragging, was those who happened to be age 22 or younger in early 1983–born in 1960 or later–would get screwed. Welcome to the American political system.
The significance of this increase in the full retirement age is that for those thinking of taking benefits at age 66; you will be taking “early” retirement, resulting in a 1.1% reduction for starting payments two months before the new full retirement age. That means that the benefit reduction or penalty for taking early retirement increases from 25% to 25.83% of your benefits for the rest of your life.
The full retirement age is scheduled to go all the way to age 67 over the next five years. By then, if you wanted to still take early retirement at age 62, the penalty would be a whopping 30% discount. And for those like me, who plan to wait until age 70 before collecting Social Security, you could no longer count on an 8% annual increase in benefits after age 66 (a 32% increase in monthly payments). Instead that jump in benefits would only amount to 24%.
Fortunately for most Americans, the average age of retirement is moving up anyway. There are a number of factors which is making retirement a less attractive alternative to Baby Boomers and beyond. The decline in the value of Social Security benefits is just one of them.
The shift from defined benefit (pension) plans to 401(k) plans eliminated a built-in incentive to retire. Those of us who contribute to 401(k) plans tend to work several years longer than those with pensions. It has also been discovered that people with more education want to work longer. Since education levels have risen quite a bit over the last three decades, it makes sense that many enjoy working for longer.
The decline of employee-sponsored, retiree health insurance has also become a big factor, given the ever-escalating cost of health care. As a result, employees have an extra incentive to keep working, at least until Medicare kicks in at age 65.
A combination of less-physically demanding jobs, coupled with improved health and longevity have also kept more workers at their jobs longer. I have also noticed a rising trend among my own clients, especially those who are more educated, healthy and wealthy, who want to keep on working even though they are making less than they did in the past.
As most readers know, more women are working than ever before. Working wives, on average, are three years younger than their spouses and most couples like to co-ordinate their retirement. Most wives want to wait to retire until at least age 62 so they can qualify for Social Security. If that pattern holds true, most men will tend to wait until at least 65-66 of age to retire.
In my case, my wife is younger, happens to be my boss, and has no intention to retire. That makes life perfect for me, since I could work until I die (and I intend to) unless my mind goes. I imagine there are many more antiques like me out there who feel the same way.